Whether or not it actually will, the government is worried that the frozen and highly inelastic supply curve, combined with a rightward demand shift, will lead to rent prices being way too high. They consider some policies to alleviate the problem.

The first policy they consider is a housing subsidy. Under this policy, the government sends every renter a monthly check for $500 to help cover part of their rent.

What would our model of supply and demand predict would happen in this instance?

(more than one answer)

1. The price of rent will rise by about $500

2. Economic surplus for renters will go up by about $500/month relative to what it would be without the policy.

3. More people will be able to rent in the neighborhood

4. Economic surplus of landlords will fall